World Bank Trims Global Outlook As Developing Nations Slow

1/16/2013 1:09 AM ET

The World Bank on Wednesday lowered the outlook for the global economy as growth in developing economies sank to a decade-low while austerity, unemployment and low economic sentiment continued to weigh down activity in high-income nations.

Releasing the latest Global Economic Prospects report, the lender said it now expects the global economy to grow 2.4 percent in 2013, weaker than its June forecast for a 3 percent expansion. The bank estimates 2012 global gross domestic product growth at 2.3 percent, weaker than the previously estimated 2.5 percent.

The growth estimate for 2014 has also been lowered to 3.1 percent from the initial forecast of 3.3 percent.

"The economic recovery remains fragile and uncertain, clouding the prospect for rapid improvement and a return to more robust economic growth," World Bank Group President Jim Yong Kim said.

The GDP of developing countries is estimated to have grown 5.1 percent in 2012, the slowest pace in 10 years, partly because of the heightened Euro Area uncertainty in May and June. The region is projected to expand 5.5 percent in 2013, weaker than the June forecast for growth of 5.9 percent.

Growth estimate for high-income countries has been downgraded to 1.3 percent each for 2012 and 2013.

At the same time, the lender raised its 2013 growth forecast for China to 8.4 percent from its June projection of 8.1 percent in 2013. China's economy slowed to an estimated 7.9 percent in 2012 from 9.3 percent in 2011, its weakest rate since 1999, the banks said in the report.

Meanwhile, India's growth is projected to decelerate to 5.4 percent in fiscal year ending March 2013 from 6.5 percent in the 2011. This is weaker than the previous projection for a growth of 6.9 percent in fiscal year 2012-13.

The World Bank also lowered the outlook for the Japanese economy. It is now forecast to grow 0.8 percent in 2013 after the 1.9 percent expansion in 2012. The nation's growth is expected to rebound to 1.2 percent in 2014.

The US economy is seen expanding at a weaker-than-expected pace of 1.9 percent in 2013. The GDP forecast for 2014 remained unchanged at 2.8 percent.

The growth in the euro area is now projected to return to positive territory only in 2014, with GDP expected to contract by 0.1 percent in 2013, compared to the June forecast for 0.7 percent growth. The growth is then expected to edge up to 0.9 percent in 2014 and 1.4 percent in 2015.

"With governments in high-income countries struggling to make fiscal policies more sustainable, developing countries should resist trying to anticipate every fluctuation in developed countries and, instead, ensure that their fiscal and monetary policies are robust and responsive to domestic conditions," said Kaushik Basu, Chief Economist at the World Bank.

The World Bank also listed a number of downside risks to the global economy, including a stalling of the progress on the euro area crisis, the debt and fiscal issues in the U.S., the possibility of a sharp slowing of investment in China and a disruption in global oil supplies.

However, the report pointed out that the likelihood of these risks and their potential impacts have diminished and the possibility of a stronger-than-anticipated recovery in high-income countries has increased.

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